MLP's are Open to 'Hit Pieces'
April 22, 2014 6 pm
Got a note from a reader mentioning that Hedgeye was targeting Atlas Pipeline Partners (ticker:APL), Atlas Energy Partners (ticker:ATLS), and Atlas Resource Partners (ticker:ARP) as new shorts. We have been so busy with our real work we haven't been able to read a lot of the current news and rumors. So we checked into the tweets, Seeking Alpha articles etc. that have begun to fly and below we recap our thoughts.
I have come to expect that twitter and Seeking Alpha will be conduits in which to slam or tout companies of all sorts. Additionally even CNBC is a conduit for the same sort of 'news'---what is one to expect when we have business news 24 hours a day---honestly most of what CNBC airs is just the opinion of folks that are 'talking their book'. Carl Icahn plays CNBC like a fiddle---1 tweet and they are on the phone to him for comments. Even Warren Buffett takes advantage of them and they are most happy to fill air time--I think Warren just likes the attention of the young ladies. Bill Ackman, Dan Loeb--they all take advantage of any legal method out there to further their cause. We don't particularly like it, but in general it doesn't affect us--what they want to tout up and down are pretty much not securities we own. We would like to 'wish away' all of these touters, but they are here and they will be for a long time so one must learn to deal with it.
Relative to Hedgeye and the Atlas MLP's. As I have written about a number of times recently MLP's are so much more complex than anyone is realizing. When Boardwalk Pipeline Partners (ticker:BWP) blew up some months ago we did further research on a number of issues (not all of course--who has that kind of time) and found the midstream players in particular are so complex you really need to spend a number of hours reading their 10q's etc. Some of these partnerships have pipelines that are simply setting about unused---others have pipelines running the wrong direction (maybe they should be running from Pennsylvania to the south instead of from the south to the north) or storage in the wrong geographical area. Hedgeye has mentioned many times that folks simply don't really know what they own in some of these MLP's--no doubt they are correct and no doubt there will be more blow ups.
On April 10th we posted a story from Bloomberg that outlined storage from New Mexico to Alabama that has filled with crude oil that can't be moved further because there is no available resources to move the product. How will these types of items affect producers, pipeline and storage companies? How is the storage owner being paid? Do they make nearly the profit simply by storing product long term as compared to bringing product in and then moving it further downstream?
Note that we sold most all of our MLP's months ago---if we can't understand a company quite easily then we don't really like to own it and that is where we were with the midstream MLP's. We currently own just 2 MLP's and one of them is a financial, while the other is a energy producer.
So how does this Hedgeye short affect our Atlas Preferred stock holdings? The short answer is that it doesn't affect us. Why? We have a priority claim on payouts and the common units would have to have their distribution cut substantially before we would have a real concern. Of course something can go very wrong which could affect our holding and we certainly hope this doesn't happen, but it could happen. We have limited our position in the new Atlas 8.25% preferred to just 200 shares--under 1% of the portfolio.